Capital markets digitized trading decades ago, but the infrastructure governing ownership, voting and settlement still belongs to an earlier era. Now, pressure from issuers, investors and regulators is forcing a deeper overhaul across transfer agency, custody and exchange operations.
Real-time share registries, automated compliance, AI-driven investor services and blockchain-based voting are moving from the realm of the conceptual to the actual, even as institutions navigate complex regulatory and operational constraints.
Legacy architecture under strain
David Yermack, professor of finance at the New York University Stern School of Business and author of Corporate Governance and Blockchains, argues that the system’s foundations were never fully rebuilt for the digital age.
‘We moved from paper to dematerialized shares in computer databases in the 1960s, but the systems for casting votes, trading shares and clearing trades were not modernized at the same time. It is literally a 19th-century system in a 21st-century world,’ he says.
David Yermack, professor of finance at the New York University Stern School of Business
The result is layered reconciliation and delayed settlement. ‘That’s why trades still take a full day to settle on Wall Street, which is embarrassing. Most transactions should settle instantly.’
Transfer agents, he argues, are products of that legacy. ‘Transfer agents exist because the old system had a high error rate. [They] largely exist to reconcile discrepancies across multiple registries… which often don’t match.’ Yermack adds that, at its root, ‘this entire structure is an artifact of a paper-based system that was never re-engineered when early computer technology replaced physical certificates.’
That critique is increasingly echoed by infrastructure providers attempting to replace brittle, vendor-heavy stacks with integrated digital platforms. For example, Broadridge Financial Solutions has positioned its modernization programs around replacing legacy vendor systems, consolidating data and automating post-trade and investor communications workflows.
Transfer agency at a tipping point
Rob Schoder, CEO of Vinyl Equity, sees four forces that have slowed change. The first is ‘market structure,’ which Schoder says is in part due to the markets being dominated by large transfer agents such as Fidelity Investments, Computershare, Continental about 30 smaller players. ‘Oligopolies tend not to foster innovation particularly well,’ he explains.
The second factor is ‘timing.’ Private markets typically lead public markets by about ten years. The book-entry standard evolved after the paperwork crisis of the late 1960s and was formalized through the SEC’s dematerialization efforts before reaching a product-market fit with Carta, founded 14 years ago, according to Schoder. With few recent IPOs, several pre-float digitally native companies are now questioning why access codes are mailed, onboarding isn’t carried out on day one and communication is delayed.
Rob Schoder, CEO of Vinyl Equity
The third factor is ‘transparency.’ The industry is esoteric and capital-intensive – ‘You have to own the ledger,’ says Schoder – making entry and innovation difficult.
The final factor is ‘incentives.’ In oligopolies, firms often prioritize value extraction. Transfer agents often earn millions in income from margins or earning interest on dividend escrows, Schoder notes, providing an incentive to mail checks over automated clearing houses to generate extra float.
Given these factors, alongside the rise of real-time payments and settlement, he foresees ‘the most potent moment for innovation in the space.’
Large incumbents are not standing still. Computershare, in submissions to US regulators, has outlined pathways for tokenized securities within existing market structure, arguing that transfer agents can play a central role in maintaining compliant shareholder records even as assets migrate to distributed ledgers. The firm has emphasized regulatory engagement, integration with the Depository Trust Company and the need for approved rails rather than fragmented tokenization efforts.
In the UK, Equiniti has similarly focused on digitizing share registration and proxy workflows, highlighting the benefits of electronic communication, digital voting channels and streamlined corporate actions processing.
Schoder argues that most of the efficiency opportunity in transfer agency is via APIs, integrations and digital workflows: ‘Through technology and integrations, not just AI, we can automate or eliminate roughly 80 percent of the work transfer agents do.’ This could mean using AI selectively to modernize underlying infrastructure, for example, in customer operations.
Yet modernization must extend beyond the ledger, he adds. ‘The primary challenges in transfer agency are not ledger-related; they’re user-experience problems,’ says Schroder. ‘The user experience in this industry is broken in pervasive and significant ways… Great technologies only reach mass adoption when they deliver information and utility in an accessible way.’ In other words usability is the main barrier in the market todayand ledger choices (including blockchain) are secondary to solving the user experience.
Real-time data and AI-driven services
The next phase of modernization centers on real-time registries and embedded compliance. Yermack frames the architectural requirement: ‘What’s needed is a modern, computer-based system that allows decentralized access to data without excessive redundancy.’
At Northern Trust, blockchain-based asset servicing has been in place since 2017. Justin Chapman, group head of strategic partnerships, digital assets and financial markets, emphasizes a use-case-first approach. ‘Rather than leading with technology, our approach is to look at the client’s needs and the product that has to be delivered to meet that need,’ he explains. ‘If the right technology is a blockchain or distributed ledger, then that is what will be used, but this is never the initial driver.’
He argues the value lies in programmability and data. ‘Digital assets real value is allowing programmability at the asset level while offering trusted and actionable insights that would not be available with traditionally issued or traded assets.
‘Although digital assets when deployed correctly can and will create operational efficiencies we believe its real value is in the data, transferability of said data and the potential for these to be settled using new networks in real or to near-real time. This is where the business case is – not in operational efficiency.’
Justin Chapman, group head of strategic partnerships, digital assets and financial markets at Northern Trust
AI is reshaping servicing models, too. ‘Our use of AI solutions to process transactions and mitigate risk has been under way for several years now,’ says Chapman. ‘As AI evolves, we continue to develop and strengthen our tools and capabilities for digitizing documents, reconciling accounts, and detecting anomalous, fraudulent transactions.’ The ambition extends to reporting: ‘We’re exploring the potential for using generative AI to create reporting solutions that go beyond simple chatbots to full, interactive financial reporting, enabling a level of conversational customization far beyond traditional portals and report generators.’
Legacy cores can limit that shift. ‘Most transfer agents running on mainframe systems are at a disadvantage, because it’s very difficult for AI to truly understand or interact with those environments,’ Schoder says. ‘The companies that get the most leverage from AI will be those that have embedded it deeply into how they operate.’
Blockchain and proxy voting
Proxy voting exposes the structural weaknesses of today’s architecture, Yermack argues. ‘Responsibility is delegated to individual brokers, who distribute ballots, reconcile votes internally and report up the chain. A lot can go wrong,’ he says, adding that securities lending complicates matters. ‘If shares are lent, the voting right moves downstream, often without the original owner knowing.’
Even with this complication, the path for reconciliation is limited. ‘Brokers are supposed to reconcile this, but it’s an arcane and cumbersome process with hard constraints when too many people try to vote,’ Yermack adds.
A distributed ledger has the potential to change that design, he explains. ‘A blockchain enables that kind of distributed access, allowing those with permission to read or write to the ledger… The system is far more versatile and would eliminate many primitive methods used not just for voting, but for buying, selling and lending shares.’
On proxy voting specifically, Scott Kimpel, partner at Hunton Andrews Kurth, Blockchain commentator and former counsel to SEC commissioner Troy Paredes, recognizes that there are inefficiencies with many steps involving manual processes.
‘A blockchain-based system could create efficiencies. Ideally, shareholders could interact directly with each other and with the company without intermediaries. Brokers would not need to sit in the middle,’ he says.
The problem however is that there is a well-established and lucrative global intermediary system. ‘They are not eager to be removed from the process,’ he explains. ‘The challenge is disintermediation. If you eliminate an entire industry, is that in everyone’s best interest?’
Instead, he suggests that intermediaries may develop systems that improve the technological experience while preserving their role, or even create their own platforms.
Scott Kimpel, partner at Hunton Andrews Kurth
Resistance, Yermack argues, often reflects incentives. ‘Some object to blockchain not because of the technology, but because it promotes transparency… These are technology risks, not governance risks… The legacy system, largely analog, has even greater vulnerabilities. We need safeguards to manage velocity and systemic shocks.’ He describes the New York Stock Exchange’s decision to allow the tokenization of shares as ‘a watershed moment.’
Schoder cautions against fragmentation. ‘We’ve long believed it’s the most practical place for these ledgers to live… but the real impediments are scale and privacy.’
‘There are roughly 3,500 broker-dealers in the US… Getting everyone onto the same system is difficult,’ he adds. ‘We’re on the edge of a ‘wild west’ scenario where issuers could ask transfer agents to tokenize on any chain. That’s not a sustainable direction for public markets.’
But of course, there are some wondering whether the work is worth the pay off.
‘Our current system works,’ says Kimpel. ‘It may not be the most efficient, but it functions. Are incremental improvements in settlement time and authentication worth the massive investment required to replace it?’
Regulation, risk and inevitability
Companies remain understandably cautious. ‘Most issuers look at tokenization and ask What benefit do we actually get? It’s non-core to their business,’ Schoder says.
That means that regulatory clarity is critical. ‘There’s no practical rule of law that provides real clarity. For a stable business, that lack of clarity introduces risk,’ says Schoder. ‘Now, I think we’ll see meaningful clarity within the next three years, which is light speed by government standards.’
From a governance perspective, Yermack sees modernization as unavoidable. ‘More modern platforms for ownership tracking are inevitable. Just as the web evolved dramatically since the 1990s, record-keeping technology will continue to change.’
The direction of travel is clear. ‘If we’re not headed toward real-time settlement, then we have a problem,’ Schoder says. And as infrastructure evolves, ‘we’ll begin to see the grip that certain intermediaries have on parts of the market loosen.’
As for Kimpel, clear frameworks are required: ‘I believe we can build legal and regulatory guidelines that allow innovation while protecting investors. We have done so with prior technologies and there is no reason we cannot do so with this one [Blockchain].’
Capital markets are being rewired in real time. The challenge is not whether to modernize, but how to do so without destabilizing the system they are trying to improve.